Bank Behavior Research Articles

Mathematical Modeling of the Consumer Loan Market in Russia under Sanctions

The article develops and investigates a new model for the formation of interest rates on consumer loans based on an analysis of commercial interests and the logic of behavior of commercial banks. The model assumes that the borrowers’ incomes are described by a geometric Brownian motion. Commercial banks assess the default risk of borrowers. According to the Feynman–Kac formula, the assessment is reduced to solving a boundary value problem for partial differential equations. An analytical solution to this problem is constructed. The model is used to analyze the problem of maintaining consumer credit under the current conditions as a mechanism for social adaptation of households.

Corporate Pay-out Policy and Test of Life Cycle Theory; Evidence from Nepalese Commercial Banks

Dividend policy of firm in theoretical finance is one of the most controversial issue, various theories of dividend policy try to explain the dividend behaviour of the firm. The dividend distributed by a firm to its shareholder is very different when it is viewed from the perspective of the company’s life cycle. If no regulation forces, then firms at initial stage have higher investment opportunities, so they retain all their earning and pay no dividend. The firms at maturity stage have less investment opportunities, slow pace of growth rate and lower cost of raising external capital, hence, mature firms retain less and pays higher dividend. Life cycle hypothesis suggests that firm increases their dividend with their maturity. This study investigates the dividend behaviour of Nepalese commercial banks, by using the ten years panel data for the period from 2010 to 2019. Using conventional proxies of life cycle, the result of the study consistently shows that Nepalese listed commercial bank follow dividend life cycle theory. The result also shows that larger firms pay higher dividend and dividend history has positive relation with next period dividend payment. The result is robust and such robustness check has been conducted by altering some of the proxies of the variables. The result of the study suggest that the regulators should not impose same dividend policy to the entire banking industry.

Consumer complaining behavior in banking: the influence of brand image on brand forgiveness and negative word-of-mouth

Consumer complaining behavior in banking: the influence of brand image on brand forgiveness and negative word-of-mouth

A Study of Banks’ Systemic Importance and Moral Hazard Behaviour: A Panel Threshold Regression Approach

This study has two objectives, first, to investigate if the lending behaviour of banks exhibits moral hazard in the Indian Banking Industry, and second, to investigate whether banks’ moral hazard behaviour changes when the systemic importance of the banks is taken into consideration. We studied banks’ moral hazard behaviour by observing the impact of their level of Net Non-Performing Loans (NNPL) on their lending behaviour. This study used threshold panel regression by using 1 year lagged values of NNPL as the threshold variable to find its endogenously determined value that impacts the lending behaviour of the banks. The 1 year lagged value of the NNPL (threshold variable) has been used to depict the level of distress faced by a bank. Assuming that loans may turn bad any year after they are granted, a banks’ lending behaviour has been shown through the relationship between various lags of Loan Growth Rate (LGR) and the contemporaneous values of Net Non-Performing Loans (NNPL). As per our analysis, the loan growth ratio raises NPLs with a relatively higher value when banks are experiencing prior sizable loan losses as compared to when banks are relatively safe, indicating moral hazard behaviour in the Indian banking industry. However, when the systemic importance of the bank is considered, the systemically important banks are found to be engaged in risky lending irrespective of their level of distress, whereas the opposite results are found for the least important banks.

Bank lending behaviour and small enterprise debt financing

PurposeThe reason for concern is the rapid decline in loans to small enterprises which is critical to their performance, compared to large businesses following the periods of banking reformations in Nigeria. Thus, the purpose of this paper is to investigate the influence of risk perception on bank lending behaviour to small enterprises. It also investigates the impact of government intervention, consolidation and recapitalization on the relationship between risk perception and bank lending behaviour to small enterprise.Design/methodology/approachThis study empirically analysed (ordinary least square) secondary data obtained from the Central Bank of Nigeria Statistical Bulletins, Annual Statement of Accounts covering the period 1992–2020.FindingsThe results show that the absence of government interventions and the presence of banking reformations have statistically negative significant effect on bank lending to small enterprises. The findings challenge the argument that generally assumes risk aversion of banks towards small enterprise lending because of small enterprise’s inability to prove their credit worthiness and consequently constraining access to finance to the sector. Instead, the results and analysis from this study found theoretical support for the variation of bank behaviour in lending to small enterprises depending on the status of wealth of the financial system.Practical implicationsA key lesson from this study for government concerned about promoting performance of the small enterprise sector is that regulating and enforcing lending requirements on access to debt financing of the sector is necessary if constraints in access debt finance is to be eliminated. Second, while strategies such as bank consolidation, recapitalization may help strengthen and make financially robust the banking system; it places the banks in a gain position where losses looms to them than gain.Originality/valueThis study challenges the argument that generally assumes risk aversion of banks towards small enterprise lending as a result of inability to prove their credit worthiness and consequently constraining access to finance to the sector. Instead, the results and analysis from this study reveal a variation in lending to small enterprises and suggests that the position of the bank in relation to a reference point influences how risk is perceived by the bank and thus impacts on their risk decision-making behaviour.

Dynamization Analysis of Capital Inflow, Credit Allocation, and Banking Performance using Panel Vector Autoregressive

The direction of globalization and the integration of the financial system continue to increase, in line with the increasing capital flows, which is the focus of discussion in this research. This study applies panel data analysis to analyze banking behavior in order to improve its performance. The analysis uses panel data from 1991 to 2020 in 39 countries. Return on Equity (ROE) as a measure of the success of banking operations is determined by various interrelated factors. One of the variables closely related to banking performance is the share of non-financial business loans, the share of capital inflows entering the banking sector, and the share of capital inflows entering the non-bank sector. Economic variables that support good banking performance are GDP growth, bank concentration, inflation, leverage, and bank efficiency. This article applies a Panel Vector Autoregressive to capture the dynamization, and heterogeneity. The most exciting results were obtained by dividing the sample into subgroups, which helped the researcher understand each regime's different roles and transmissions. The changes in capital inflows to the non-bank sector will significantly reduce ROE and increase leverage for the next five periods. The results of the study imply that nowadays, bank managers should be aware while the changes in capital inflows change very quickly. Bank managers in countries with high capital inflows must always be aware of changes in capital inflows to the non-bank sector—steps to bank management by diversifying sources of funds efficiently from other parties in the transmission of credit channel.

Earnings management and bank risk-taking behavior in Asia-Pacific region

The issue of bank risk-taking behavior has regained attention in Asia-Pacific banking sector as banks in this region are facing rising risk and capital costs. This study investigates the association between earnings management and risk-taking behavior in Asia-Pacific banks. We argue that earnings management induces banks to invest in riskier assets to ‘search for yield’ since earnings management increases banks’ capital cost leading to reduction in profitability. Using a sample of 237 listed commercial banks across 13 Asia-Pacific countries and territories in the period of 2001–2017, our research finds that there is a significant positive relationship between earnings management using loan loss provisions and bank risk-taking behavior.

Bank-specific factors and credit risk: evidence from Italian banks in different local markets

PurposeUsing bank-level data over the 1994–2015 period, the authors aim to investigate the role of bank-specific factors on credit risk in Italy by considering two different groups of banks, namely, cooperative and non-cooperative (commercial and popular), in different local markets.Design/methodology/approachRelying on highly territorially disaggregated data at labour market areas’ level, the authors estimate the impact of the role of bank-specific factors on credit risk in Italy from the estimation of a fixed-effect estimator. Non-performing loans to total loans has been used as a proxy of credit risk; the bank-specific factors are as follows: growth of loans, reflecting credit policy; log of total assets, controlling for banks’ size; loans to total assets, reflecting the volume of credit market; equity to total assets, capturing the solvency of banks and reflecting their capital strength; return on assets, reflecting the profitability of banks; deposits to loans, reflecting the intermediation cost; cost of total assets, reflecting the banks’ efficiency or volume of intermediation cost.FindingsThe empirical findings suggest that regulatory credit policy, capitalisation, volume of credit and volume of intermediation costs are the main bank-specific factors affecting non-performing loans. Nevertheless, the present analysis suggests that the behaviour of cooperative banks’ behaviour seems to be in line with that of commercial rather than popular banks, casting doubts about the feasibility of their credit policies. It turns out that recent reforms involving popular and cooperative banks represent the first step toward the enhancement of the stability and efficiency of the Italian banking system. While the present study’s benchmark results are not particularly affected by the degree of competition in the banking sector and by banks’ size, it shows that both cooperative and non-cooperative banks have undertaken more prudent credit policies after the advent of the financial crisis and the introduction of the Basel regulation.Originality/valueThe relationship between bank-specific factors and credit risk has been analysed using a rich sample of cooperative, commercial and popular banks in Italy over the 1994–2015 period. The authors rely on labour market areas being sub-regional geographical areas where the bulk of the labour force lives and works. The contribution is motivated by the financial distress experienced after the 2008 financial crisis, which has significantly hit the Italian banking system and cooperative banks in particular.

Bank size and the transmission of monetary policy: Revisiting the lending channel

We model how monetary policy shocks affect the lending behavior of small and large banks. Other things being equal, small banks are riskier than large banks since the latter are more likely to be bailed out. Thus, small banks face a higher cost of non-deposit financing and are unable to finance liquidity shocks at a cost below a certain threshold. Consequently, we show that under a tight monetary regime small bank lending is more sensitive to monetary shocks. This relation reverses under loose monetary regimes where large bank lending is more responsive to monetary shocks. Our empirical results strongly support our analysis.

Excess Liquidity and the Usefulness of the Money Multiplier

We model the behaviour of banks as a main driver of the changing components of the money multiplier (MM). So we provide behavioural underpinnings for the supply and demand for inside and outside money. We illustrate how the creation of large outside money balances by central banks induces behavioural changes, creating an environment characterised by a low MM and low market interest rates. The low regime reflects a state in which the functioning of the financial system changes fundamentally due to excess supply of reserves. This so-called excess liquidity trap has adverse economic consequences, is persistent, and cannot be solved by monetary policy alone. We argue that government and supervisory measures taken during the pandemic provide an example of supporting policies that are effective in escaping the excess liquidity trap.

The fallacies of central bank independence

The fallacies of central bank independence

Corporate governance, gender diversity and risk-taking behaviour of banks in an emerging economy – some empirical evidence from Ghana

PurposeThis study aims to examine the relationship between corporate governance, including board gender diversity and bank risk-taking behaviour in Ghana.Design/methodology/approachThis research uses panel corrected standard errors estimation on 26 selected banks over an 11-year period from 2006 to 2016.FindingsUsing three proxies for bank risk-taking and two proxies for gender diversity for the purposes of checking robustness, this study finds ample evidence to support the important influence of corporate governance and board gender diversity on bank risk-taking behaviour. The findings suggest that independence, gender diversity, size and leadership consolidation can have significant effects on the risk profile of banking firms. The initial finding of the study suggests the possibility that female board gender diversity on Ghanaian banking boards follows the tokenism theory. Subsequent estimations seem to provide evidence to suggest that attaining a critical mass of female board members imposes a significant control on risk-taking behaviour by banks.Originality/valueThis study has important implications for gender diversity in board construction within the banking sector and the discourse on bank risk-taking in an emerging market context.

The impact of regulatory reforms on European bank behaviour: A dynamic structural estimation

This paper develops a dynamic structural model of bank behaviour. Banks can vary their financing structure, business model and decide on rating solicitation, in the presence of costly debt, corporation tax, insolvency costs and convex adjustment costs. The model is then simulated to examine the impact of regulation on banks’ behaviour. A bail-in regime leads to reduced bank lending activity, while having little impact on bank insolvency rates. Stringent capital requirements reduce bank insolvency rates in a crisis period, while mitigating the reduction in lending activity due to an increased uptake in marginal investments. More lenient credit ratings are associated with increased bank failures. These findings offer wide-ranging implications for policy makers and the banking industry.

Cluster Analysis Study on Various Cluster Validity Indexes with Various Linkages and Euclidean Distance (Study on Compliant Paying Behavior of Bank X Customers in Indonesia 2021)

Cluster Analysis Study on Various Cluster Validity Indexes with Various Linkages and Euclidean Distance (Study on Compliant Paying Behavior of Bank X Customers in Indonesia 2021)

Interbank Network as a Channel of Credit Contagion in Banks: Is Moral Hazard Transferable?

Abstract The objective of this research is to examine the inter-bank network of clients as a channel for credit risk transmission by groups of banks in Serbia characterized by different levels of credit risk (clusters). Two of the four observed groups of banks have experienced increase in NPLs through the channel of contagion spread in the interbank network. The spread of the infection through the banking network is a consequence of the impact of the economic connection among clients. The third group of banks (banks with high levels of credit risk) takes over the effects of systemic factors and transfers their influence to the second and the first group (banks with average and below-average credit risk level) through the banking network channel. There were different models of bank behaviour, from a group of banks that fully aligned their risk taking with risk capacity to a group of banks that exhibited an excessive risk propensity far beyond their own risk-taking capacity. There is also the confirmation that moral hazard was an important determinant of credit risk and an additional impulse to spread credit contagion.

Comparison of the Use of Linkage in Cluster Integration With Path Analysis Approach

This study aims to compare integrated clusters on various linkages (Ward, Complete, and Average linkage) with path analysis to classify the behavior of subservient to pay for mortgages. The data used are primary data from questionnaires filled out by Bank X customers, using purposive sampling. The measurement method used is the average score method. Liu et al. with the title “Enhanced path-based Clustering Algorithm” shows the results that path analysis with cluster integration gives results that outperform other cluster algorithms. So, this study uses the cluster integration with path analysis method by comparing the linkage. The results showed that cluster integration in the Ward linkage method with path analysis was the best method, by comparing the coefficient of determination. The variables of attitude, subjective norms, behavioral control, and intention to comply with paying explained the behavior of Bank X customers to comply with paying mortgages by 88.32%, while the remaining 11.68% was explained by variables outside the model.

Leverage Regulations Work and Its Impact for the Stabilisation of Financial Systems

Banks are the most leveraged institutions in the world that have produced protection for the combination of “Federal Deposit Insurance Corporation (FDIC)” and “fractional-reserve banking”. The primary purpose of this paper is to evaluate the leverage regulations work and the types of equipment that help in stabilising the financial system. Depending on the leverage ratio an individual bank can measure its total assets and core capital that help in protecting the bank from any kind of financial or economic crisis. Every individual financial sector generally follows some specific rules and regulations to maintain the financial flow. In this regard, utilising the microeconomic framework, the behaviour of banks can be understood. The researcher has selected the “secondary qualitative data collection method” to collect the data and information to lead the further study. In order to describe the collected sources in an understandable way “thematic technique” has been adopted. Preparing five themes in simple and understandable words, the paper has been made valuable for the readers. Moreover, this study paper will serve the readers with reliable and valuable information about leverage regulations work and their impact on the stabilisation of financial systems. Keywords : Financial risk, financial system, Leverage Regulations Work, policies, security, and stabilization.

Threshold Panel Method for Analysis of the Effect of Banking Investment Allocation on Banking Performance, A Cross Country Studies: Some OECD Countries

The direction of globalization and the integration of the financial system continues to increase in line with the trend of increasing capital flows which is the focus of discussion in this research. This study applies panel data analysis to analyze banking behavior to improve its performance. The analysis uses a linear model and a threshold model—panel data from 1991 to 2020 in 39 countries. Threshold panel regression is a non-linear model applied in this study to prove a change in the impact of independent variables that affect banking performance in specific regimes. In general, the linear model Coef.icients are as expected according to the theory. Analysis using threshold panel regression will give more profound results and higher intuition. Threshold panel regression has a smaller SSR value than the linear model. This study applies one threshold value to produce two different regimes. Changes in the impact occur at a certain threshold. Conclusively, this study finds threshold values ??for GDP growth, Concentration, Inflation, Leverage, Efficiency, and Credit Allocation. The GDP growth rate as a threshold is the most efficient model. The Coef.icients on the threshold panel regression model generally are in line with theoretical expectations. Still, some differences become the advantages of this non-linear model, revealing different economic conditions.

IMPACT OF ECONOMIC FREEDOM AND ITS SUBCOMPONENTS ON COMMERCIAL BANKS’ RISK-TAKING

We hypothesize that both liberalization and economic freedom are double-edged swords for the banking industry because they can increase both stability and fragility of the banks. To test our hypotheses, we use the two-step GMM technique to examine the impact of economic freedom and the impacts of all of its sub-components on the risk-taking behavior of US commercial banks for the period from 2003 to 2019. We find that economic freedom adversely affects banks’ risks, and therefore, increases the stability of the banking system. We observe that not all types of freedoms have positive outcomes in the banking sector, both investment and trade-related deregulation increase the fragility of the banking sector, and any type of relaxation in which banks play a direct role has a negative influence on the characteristics of banks like capital control or trade. Consistent with the competition stability theory, our findings conclude that higher economic freedom will yield higher stability in the US commercial banks. Whereas our findings are heterogeneous across all of its sub-components, all the sub-components expect investment and trade freedom positively influence the banks’ stability. Additionally, the result of this study remains consistent across well-, and under-capitalized banks, and the outcome of this study remains robust to the alternative measures of risk. Regulators, policymakers and bank managers could draw implications from the results in this paper in deciding how much liberalization the banks can handle and they also must consider the heterogeneity in the impacts from all of the sub-components because not all of them generate favorable outcomes for banks.

On the Civil Liability of Banks and Notaries in the Field of Inheritance Law

The article is devoted to the issue of civil liability of banks and notaries in the field of inheritance law. The article describes the doctrinal approaches to the definition of civil liability. Specific court cases with examples of illegal behavior of banks and notaries in the field of inheritance law, as well as their consequences, are given. The author’s position on the problem under consideration is expressed.